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October 10, 2012

Piggy banks and other “banks on hooves”

By Kerry Brennan

Why are piggy banks in the shape of a pig? I had been certain that piggy banks were simply a decorative representation of the fact that keeping a pig (or any livestock) is an informal way to save—“deposits” paid into the pig by feeding and housing it can be “withdrawn” once the pig is sold. A bit of research informed me, however, that the etymologists have the economists beat on this one. The name derives from the old English word for the ceramic once commonly used to make household containers, “pygg.” Saving in these “pygg banks” became popular, and potters began to create savings boxes in the shape of the animal.[i]

Linguistic origins of the piggy bank aside, I have been thinking about livestock-as-savings after happening upon a book chapter by economists Christopher Barrett, Marc Bellemare, and Sharon Osterloh entitled, “Household-level livestock marketing behavior among Northern Kenyan and Southern Ethiopian pastoralists.”[ii] (The working paper version is available here.) The authors are interested in why pastoralists keep a large percentage of their assets in livestock, infrequently selling the animals even when the price of livestock spikes (and a sale would generate a high return). It’s easy to assume that holding assets in the form of cash or bank accounts would be less risky than holding them in livestock. Even if the risks weren’t that different there should be some benefit from diversification. But pastoralists in the study preferred “banks on hooves” to actual banks even when formal banks were available.

One area, for example, was served by a cooperative bank run by a Nairobi-based NGO. Many pastoralists in that community had an account at some point during the study period, but the rate of account holding went down over time. A separate study by Osterloh[iii] found that rather than producing a secure, positive return on savings, the value of shares at the cooperative bank decreased over this period due to high rates of default from borrowers. We can’t forget that savings banks are inevitably also lending banks with all the attendant risks.

This means that even when formal accounts were available, one of their principal benefits—security relative to informal savings mechanisms—was lacking. Add to this riskiness the fees that are often charged on formal accounts and it becomes even clearer why using a “bank on hooves” remained the more attractive option.

It’s a great reminder that when we discuss access to finance, we cannot be satisfied with access to just any formal financial product. Rather, we are interested in access to secure and appropriate products that meet particular financial needs better than the available alternatives. The challenge of serving rural and pastoral communities will not be solved by building more physical financial institutions, or even by the burgeoning promise of mobile banking, unless the underlying institutions and products offered can provide benefits more reliable than a bank on hooves (be it ceramic or flesh and blood).